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The three numbers that are changing the game of
politics, undermining reform and funneling big money
into North Carolina’s elections

“There are two things that are important in politics,” Mark Hanna once said. “The first is money, and I can’t remember what the second one is.”

Hanna was a chief fund-raiser for William McKinley’s successful bid for the presidency in 1896, at the time the most costly campaign in the history of American politics, and seen as the forerunner of today’s high-priced elections. His words -- though perhaps a touch cynical -- still carry more than a kernel of truth a century later. 

And while today’s champions of reform work to prove Hanna wrong, special interests with an ax to grind and money to burn look to poke loopholes into laws meant to reduce the role of money in elections, and curtail its potentially corrupting influence.

The Bipartisan Campaign Reform Act of 2002, better known as the McCain-Feingold Bill, clamped down on the flow of unlimited “soft money” to political parties and political action committees, also called PACs. But damming rivers of cash into the coffers of PACs and parties has diverted the torrents of private money into a relatively new breed of special-interest organization: the 527.

527s on the Rise

Named for the section of the IRS code granting them their tax status, 527 groups burst onto the national stage during the contentious 2004 presidential election, with an impact still felt across the nation.

Groups sprouted up from both right and left, with organizations such as Swift Boat Veterans for Truth attacking John Kerry, and America Coming Together blasting George W. Bush.

The growing trend of 527s was not confined to just presidential politics, however. North Carolina saw national 527 organizations insinuate themselves into its elections that year, including the Republican Governors Association which launched an ad critical of Gov. Mike Easley during his campaign for reelection, paid for in part with corporate funds.

In response, an ad questioning Easley’s opponent, state Sen. Patrick Ballantine, was paid for by the Democratic-backed State Capitol Media Project to the tune of an estimated $600,000.

Since 2004, the influence of 527 groups on elections in the Tar Heel state has continued to grow, as illustrated by the rift between Richard Morgan, then co-speaker of the state House, and his fellow-Republican rivals. Morgan established a 527 group, the North Carolina Republican Main Street Committee, which used corporate contributions to fund advertisements in support of his 2004 reelection campaign and the campaigns of several of his legislative allies.

In 2006, critics and rivals of the former co-speaker established their own 527 group, called the Republican Legislative Majority, which aggressively set its sights on Morgan and his allies, defeating a number of them -- including Morgan himself.

In both elections, hundreds of thousands of corporate dollars were spent on an intra-party feud, and nothing was spent, that’s been reported, to actually secure a Republican majority. (Corporations are prohibited from giving to candidates and PACs, but not 527s.)

Spreading to Court Campaigns

Tar Heel Republicans were not alone in brandishing 527s in hopes of shaping the outcome of elections last year.

FairJudges.Net, funded primarily by Democratic donors, became the first 527 to ever be a major player in a race for the N.C. Supreme Court.

The group launched a television ad in the last week of the campaign, mentioning four candidates by name and calling them “fair judges.” Though judicial candidates do not run under a party label, all but one of the contenders praised in the ad were registered Democrats, while the lone Republican had received widespread bipartisan support.

Reform advocates see the move by FairJudges.Net as setting a dangerous precedent for elections to come.

“The ad by FairJudges.Net was not overtly negative, but it was obviously supporting a certain slate of candidates over their opponents,” says Chris Heagarty, executive director of the nonpartisan N.C. Center for Voter Education. “It’s uncertain what impact the ad had on this particular election, but by opening Pandora’s box, they have invited far more political meddling by 527 groups in our courts.”

Heagarty says that right-leaning special-interest groups have already taken note of the left-leaning FairJudges.Net and have promised to launch their own 527 efforts in 2008 to support their preferred court candidates.

Shortly after last year’s elections, members of the state’s business lobby heard from a leader of the Michigan Chamber of Commerce, who encouraged them to adopt the 527 tactics seen elsewhere in the country.

“Business advocacy is more than lobbying the legislature. If your state elects Supreme Court justices, you should be involved,” said Robert S. LaBrant, senior vice president for political affairs and general counsel for the Michigan Chamber of Commerce. “In today’s arena you need more than a PAC to affect the outcome of elections ... [you] need an issue advocacy component. Issue advocacy allows you to raise corporate funds in states that prohibit corporate contributions to candidates and PACs.”

Indeed it is so-called “issue advocacy” in which 527s engage, though the ads produced by these groups are often thinly disguised swipes at candidates. 

Under current law, 527 organizations may attack or praise candidates for their stance on certain issues, or simply promote their name unattached to any issue at all. So long as the ads do not expressly call for the election or defeat of the candidates named, 527s are spared some of the stricter regulations governing PACs, candidates and political parties.

For 527s, disclosure requirements are much weaker, money can be used from otherwise prohibited sources and the state’s campaign contribution limits do not apply.

A prime example of the potency of 527s in state judicial races came in a 2004 contest for the West Virginia Supreme Court. That year, a 527 calling itself “And for the Sake of the Kids” launched an assault on Justice Warren McGraw who sought reelection. The group produced ads accusing McGraw of being lenient toward convicted child molesters, and successfully pressed for his defeat at the polls.

Financing for the group came primarily from one wealthy energy executive who poured nearly $2 million of his own money into the organization. His firm had two cases pending before the court and saw McGraw as unsympathetic to his side.

The defeated McGraw gave a word of warning to North Carolinians when he visited the state in 2005.

“You come to have some understanding of the process which is corrupted by allowing people to plow millions of dollars into campaigns to destroy public confidence in public office,” McGraw said. “It’s a horrible, horrible situation we find ourselves in."

A Gathering Storm

Unless lawmakers act now to address the growing influence of 527s in Tar Heel politics, North Carolina may face a similar fate as other states in 2008 and beyond, according to Heagarty.

“There is a gathering storm in North Carolina,” says Heagarty. “Unless we do something now, a flood of special-interest cash and 527 meddling may erode the integrity of our state’s democratic process. Money intended to influence elections, and state policy, will be pushed under the table and out of the public’s view.”

The General Assembly did approve legislation in the waning days of the 2006 session that requires greater transparency from 527 groups in reporting funding sources for their ads.  But Heagarty says that more needs to be done to rein in these organizations.

The N.C. Center for Voter Education supports treating 527s in much the same way as PACs and political parties.

“Why shouldn't groups with the same agendas and methods as PACs have to play by the same rules?” says Heagarty.

By closing loopholes exploited by 527s, Heagarty says North Carolina can turn back the rising tide of hidden, unaccounted for cash in the state’s elections. That way the most important thing about politics will be what happens in the voting booth, and not in the bank account of special interests.

WEB EXTRA : Judicial Attack Ads

While North Carolina had its first taste of a 527 group trying to influence its Supreme Court elections last fall, other states have a history of special-interest ads hitting their airwaves in hopes of determining judicial elections. Some judicial election observers say that unless North Carolina moves to close the 527 loophole, the state may face a spate of negative attack ads in campaigns to come, similar to those in the video to the right.

Video clips courtesy of the Justice at Stake Campaign.